mercredi 21 novembre 2012

Why tiny Stockholm has the most stunning startup ecosystem since Tel Aviv

It’s Friday night in Stockholm, and there’s an elbow-to-elbow crowd
at ecommerce startup Tictail’s office. It’s a wood-floored loft space in
a quiet southern corner of the city — an embodiment of the minimalist
Swedish design that has inspired the company.

There are buckets of Peroni beer on ice, Tictail
DJs are on the decks, and in the crowd a few venture-capitalist blazers
mingle with the flipped-up caps and high-top sneakers of the startup
crew. You have to get pretty cozy to hear one another over the raging
electro music. These leaders — and wanna-be leaders — of Stockholm’s
startup community are literally breathing down one another’s necks.
This is the inaugural party for Stockholm Startups, a loose confederation of startups — led by Tictail, Wrapp, iZettle,
and others — that in a very un-Swedish way have finally decided it’s
time for the local ecosystem to start talking itself up. Later, there’ll
be smoke machines, lasers, and, at about midnight, a speaker will fall
off its stand, bringing the event to a premature halt. It seems awkward
party fouls are the international language of startups.

Tonight is just a party, but it’s indicative of an emerging trend
towards Stockholm’s previously disparate startup community actually
organizing itself. That’s not to say there hasn’t already been a strong
entrepreneurial vein in the city, or a substantial tech scene. Far from
it. Stockholm has a history of tech innovation and entrepreneurship that
reaches back to QlikTech (founded 1993), MySQL (1995, also claimed by Finland), TradeDoubler (1999), and Skype (2003, also claimed by Denmark and Estonia), not to mention one-time mobile giant Ericsson (which started life as a telegraph equipment repair shop in 1876).

But while the Swedes are good at cooperating, they haven’t been so
hot at marketing their talents. They’ve been guilty of keeping to
themselves, happy to pitch in from time to time or share information,
but slow to form associations, alliances, or to aggregate their
intellectual resources in order to tell a strong story about their
community. “I really think it’s an amazing scene, but we’re very Swedish
about it,” says Tictail co-founder and CEO Carl Waldekranz, the host of
tonight’s party. “We just don’t talk about it.”

And so they’ve ceded the “LOOK AT ME” mantle to Berlin, a city that has not been shy about holding itself up as a kind of European startup Holy Land.
Don’t think that the Stockholmers haven’t noticed. When magazines name
the top tech cities in Europe, Berlin often comes out on top, with
London and Stockholm close behind. But venture capitalists and
entrepreneurs in Stockholm’s startup ecosystem will tell you that the
Germans are strong mostly in consumer Web, and that the city doesn’t
enjoy the breadth — in enterprise, in finance, in travel, in mobile, in
gaming — that Stockholm boasts. In fact, these people will point out,
one of Berlin’s hottest startups, SoundCloud,
was actually started by Swedes. (For what it’s worth, our own reporting
has shown that the people who frequently hold themselves up as the
poster child of innovation and startup panache, aren’t usually the big winners.)

Thanks to Klarna, Spotify, Rebtel, and King.com,
among others, Stockholm has a longer history of tech successes and more
big-dollar exits than its German rival. For instance, the Nordic region
as a whole — which still represents a much smaller population than
Germany — accounted for about 6.5 percent of the world’s billion-dollar
exits from 2005 to 2012, according to statistics provided by
Stockholm-based venture capital firm Creandum. Europe — excluding the
Nordics — represented 12 percent. And of the billion-dollar private
companies listed in Business Insider’s Digital 100, 13 percent are from the Nordics, while Europe without the northern region represents only 8 percent.
“The Nordics are definitely delivering a disproportionate amount of
large companies, especially considering that much less capital is
invested in the region and of course that the region is much smaller,”
says Creandum’s Daniel Blomquist.

One might argue the Nordic countries are winning the battle of sexy
too. While Germany is mostly known for knock-offs, Finland has Angry
Birds, and Sweden has Spotify. Those are two of the hottest companies in
any country in recent years. And in terms of impact, the Nordic
development of crucial parts of the open source stack enabled this
entire generation of Web companies.
Aside from a multitude of exciting startups emerging in Stockholm —
some of which I have reported on in the last week, including Magine, Tictail, Virtusize, Wrapp, and iZettle –
there are plenty of anecdotal signs that suggest the scene is growing
up. Spotify, for instance, has just moved into a new building, large
enough to accommodate its ever-growing staff of 350, with a bit of room
around the sides. Klarna, the payments company founded in 2005, has
recently moved into similarly luxurious quarters, big enough to hold
much of its staff of 800 (the rest are spread around Europe), with more
to come.

Wrapp, the social gifting startup, recently moved into new digs, too,
a converted industrial space that more than adequately accommodates its
50 employees. It is also shipping its sales and marketing teams to San
Francisco as it gears up for a big push in the US. Gaming company Mojang, creator of Minecraft, meanwhile, has become so big that it hosts an annual convention for Minecraft alone.
These are the fruits of what is now a relatively thick tech cluster
that has been a couple of decades in the making. The cluster spans three
generations, starting with QlikTech and Skype, moving through to
Spotify and Klarna, and bringing us up to Tictail and Wrapp. It is
supported by a wealth of engineering talent, educated for free in
Sweden’s quality universities and incubated in the many tech companies,
from Ericsson down, that for years have been plying their trade from the
country. That talent is pretty affordable to retain, too, especially
when compared to SIlicon Valley. While Valley engineers on average are
paid in excess of $100,000 a year, in Sweden you can hire people of equivalent skill sets for closer to $60,000, according to the startups I talked to.

That talent advantage is what keeps a lot of startups in Stockholm.
Tictail, for instance, was considering a move to Silicon Valley and even
flew there for three weeks of intense meetings on a scouting trip. The
team ultimately decided against the move, however, because it felt it
would be best to compete for top talent in Stockholm rather than just be
another startup in California. Other startups in Stockholm espoused
similar views.

There is, however, plenty of competition within the city. One
15-person startup complained that Spotify and Klarna suck up all the
talent. On stage at the SIME
Internet media conference, Klarna co-founder Niklas Adalberth said the
big guys frequently slug it out for talent. “We fight with Skype and
Spotify on every engineer,” he said.

While Stockholm looks inward for talent, however, it looks outwards
for business. It must. Sweden is a small country — population: 9 million
— so it has always turned to outsiders for trade, reaching back to the
industrial periods of the 1800s, when it exported paper, pulp, iron,
ore, and wood. Over time, it has built major international companies
that way, including IKEA, Absolut, and Volvo. In the past, though, it
would have to open offices in each market. The distribution power of the
Internet plays right into Swedish hands, then, by lessening the need to
have a physical presence on the ground in each new market.

And yet, because of its size, relative affluence, and technological
advancement, Sweden does make for a useful first market for homegrown
Internet companies. A common expansion plan starts in Sweden, moves out
to the rest of the Nordic countries, zips over to Germany, the UK, and
the rest of Europe, and then, all going exceedingly well, winds up in
the US.
Stockholm enjoys numerous other advantages, including a widely
developed broadband network pushed out by the government in the 1990s,
giving most residents the sorts of download speeds that could only
encourage rampant piracy, and hence the arrival of enterprises such as Kazaa and the Pirate Bay.
It’s not surprising that Spotify started in Sweden, where piracy was so
rampant as to be utterly normalized. Spotify founder Daniel Ek has said
that he started Spotify in part to offer a legal alternative to peer-to-peer file-sharing.

Those fast Internet connections, however, coupled with a
government-instigated PC-lending program that put computers in the hands
of even the lower classes from an early stage helped cultivate a
high-tech, early-adopter society. Plus, Swedish winters are long, dark,
and cold, which encourages people to stay inside and noodle away at
creative endeavors, such as programming or gaming.
And don’t forget that those Swedes have enviable design skills, which helps them build some of the prettiest Web services on the planet.

Okay.

So, for those keeping score, Sweden has: A nice complement of
successful tech companies across a broad range of verticals; a solid
second generation of startups that have grown to respectable sizes;
promising new startups that are taking inspiration from international
successes such as Skype and MySQL; abundant and affordable engineering
talent; an international outlook; a tech-savvy society with good
broadband; a government that on balance seems to have helped rather than
hindered the startup ecosystem; impeccable aesthetics; and shitty
winters that force everyone to stay inside and play on their computers.
Ladies and gentlemen, that’s why Stockholm is winning.

But it must suck at some things, right?

Right.

Stockholm’s biggest problem is that it doesn’t have much in the way
of early-stage capital. It’s fine from Series A on — the Nordic VC firms
Creandum and Northzone take care of that, along with international
investors, such as Accel Partners, Index Ventures, London Venture
Partners, Balderton, and others. What it lacks is a strong network of
angel investors. Sure, there are a few — Skype co-founder Niklas
Zennstrom, with his Atomico
fund, among them — but there aren’t nearly enough. Just getting off the
ground can be a major challenge for many startups, and having limited
initial funds shortens companies’ financial runways and potentially
negatively impacts their willingness to take risks or build slowly.

“The first million is as hard as finding the next 10 or 15 million,
if not harder,” says serial entrepreneur and iZettle co-founder Jacob de
Geer.
Taxes can also be a problem. Salary tax is high, but that’s not the
biggest issue. It’s difficult for companies to offer employees stock
options, because they get taxed at both ends. The employer has to assess
how much an option is worth and then factor it into its accounting
accordingly. The employee, on the other hand, only gets paid out on the
option if the company succeeds, meaning he pays his tax but can’t
recover the money if the company fails. When startups have limited
funding — and many do, because of that early-stage problem — that
restriction on options can be a serious impediment to putting together
competitive compensation packages.

Stockholm also faces challenges in attracting talent to the city,
competing as it does against Berlin, which has decidedly better weather
and a zeitgeist-y reputation, especially right now in its hipster
heyday.

The government’s short-sighted attitude to foreign students doesn’t
help — they’re kicked out of the country as soon as they complete their
degrees, even though the state heavily subsidizes the cost of their
study. A lack of downtown housing also makes the city a tough sell for
new arrivals, not least because housing is expensive compared to, say,
Berlin.

For Swedes, however, the taxes and the high costs are significantly
offset by the welfare state, which grants free education and healthcare,
and provides for a base standard of living that puts other countries
(Oh, hello there, United States of America) to shame.

For some, that might suggest that the country’s entrepreneurs won’t
be hungry enough to make it. If they know there’s a safety net to catch
them if they fall, this theory goes, then they won’t throw themselves
into the task of company-building with the “all or nothing” zealotry
that is apparently vital to building a successful business. The
entrepreneurs and investors I spoke to, however, said that the safety
net means that many people aren’t afraid to take that first step into
the unknown, because they know they won’t die on the streets if they
fail.

A perhaps negative effect of the social-capitalism, however, is that
“entrepreneur” is not all that popular a vocation in Sweden.
Entrepreneurs are still considered outliers in society, which prefers to
produce professionals such as doctors and lawyers. Some families and
friends think it weird that a young scruff should want to start a
company. With the success of Skype, Klarna, and Spotify, however, that’s
beginning to change. And anyway, some folks told me, that means that
the entrepreneurs who are around are very serious about what they’re
doing. It’s not typically a decision they’ve made lightly.

And now we must mention a final cultural quirk that throws up
sometimes unexpected challenges. In Sweden, as in all Scandinavian
countries, there exists an embedded mindset that makes it unseemly for
someone to hold himself above others. Swedes, if they’re behaving
themselves, should not stand out for any reason. That means no fancy
cars, no conspicuous yachts, no bragging about their world-changing
companies. This phenomenon has a name: The Law of Jante.

Before you laugh off the Jante Law, however, consider that National Geographic author Dan Buettner has argued in his book “Thrive” that
status equality is strongly correlated with happiness. “If you live in a
neighbourhood where everybody makes about the same amount of money as
you, you’re better off than if you live in a neighbourhood where you
have the cheapest house on the block and everybody else makes five times
as much as you,” Buettner once told me. That’s one of the reasons that countries such as Sweden and Denmark score so highly on global happiness surveys.
Fine. But isn’t such status equality a death knell for
entrepreneurship, which is supposed by many to require ambition far
beyond one’s village? Well, maybe. But I couldn’t find anyone in Sweden
who agreed with that. In fact, said Northzone’s Pär-Jörgen Pärson
in a widely echoed statement, another way to look at it is that if a
company succeeds, it sets an example for the others and makes big goals
seem achievable. If they can do it, I can do it, goes this line of thinking. (Pärson, by the way, is also the frontman of a heavy metal covers band called Frank Xerox and the Perfect Copies.)

And that idea of social leveling brings us back to Tictail’s party.
That, fundamentally, is why it is “un-Swedish” to hype oneself up, and
it probably explains why it has taken so long for a group of startups to
even think about banding together to tell a good story about their
scene to the rest of the world. That’s why the inaugural Stockholm
Startups event at Tictail’s office might be more than just a party after
all. It also might be the start of a subtle cultural shift that
ultimately gives Stockholm the bragging rights over Berlin — and the
confidence to actually brag.
[Image courtesy Alexandralee]